I worked at a large financial institution, and politics definitely play a big role; but maybe a bigger problem is with the myriad legacy systems that are costly to change and not built to be nimble -- therefore it's almost impossible to make quick changes to respond to market conditions. Large companies also have the challenge of integrating multiple systems that result from mergers and acquisitions. Companies tend to tout the operational efficiencies to be gained in mergers, but I wonder if those efficiencies are ever realized, when the costs of system conversions, employee productivity and customer loss are taken into account.

8:16 pm March 5, 2013

Oliver Graham wrote:

Here's a huge challenge...

FASB 86 says (for systems investment/spending)

(1) proof of concept spending is expensed

(2) once proved, spending can be capitalized & is typically depreciated over a 3 to 5 year period

(3) spending on maintenance—by far the biggest spending since it's not unusual for systems to be in service for multiple decades—is expensed.

So on balance systems spending is flushed through the P&L as expenses. It is unusual to see systems on the balance sheet.

Additional challenges...

(1) if systems were on the balance sheet, eventually they would attract the attention of the tax man

(2) if systems were capitalized, it would look bad when big "assets" are written off when projects fail as regularly as they do. It might imply management wasn't doing a good job. Witness the recent "glitch" when the Air Force cancelled a 6 year project after spending $1B.

Finally... when the P&L has a big lump of expenses, it's far too easy to slash said "expenses" since they are often expensive, experienced systems people (and management had no firm understanding what these people actually do).

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